China riding the fast train to wealth

John Garnaut – The Sydney Morning Herald

Copyright The Sydney Morning Herald
THREE years ago China had planned to roll out 13,000 kilometres of high-speed railway by 2020, which would be more than the rest of the world combined. Then the global financial crisis intruded and Beijing brought that 2020 deadline forward by eight years while redefining ”high speed” to mean faster than 350km/h, rather than 250km/h.
China’s bullet train project is as ambitious and potentially nation-changing as the 19th-century railways that opened up the US. Already it has created millions of Chinese jobs, pushing up wages for the country’s workers, and sucked in tens of millions of tonnes of Australian iron ore to produce the high-tensile steel for tunnels, bridges and track.
One of the 42 new lines, which began construction in 2008, will next year begin zipping passengers over 1300 kilometres and across 244 bridges between Beijing and Shanghai in just four hours. Another is already taking passengers 114 kilometres from Beijing to Tianjin in less than 30 minutes.
The Word Bank describes China’s standing-start leap as “the biggest single planned program of passenger rail investment there has ever been in one country”. And, unlike in many countries, it says fast rail in China has been well planned and makes economic sense. Last month, the country’s long-distance trains carried 160 million passengers, 18 million more than the previous July.
China’s provincial cities are being dragged into the world economy. Rail space is opening up for freight, taking the burden off the roads.
Lu Xiwei, the general manager of China Railway Vehicles Co, is working around the clock to put rolling stock on all that new track.
“I never have even one day’s rest a year,” says Lu, at his sprawling factory headquarters in Changchun, yet another booming city of 5 million people in the country’s far north. “In 365 days I can guarantee I work 364.”
Downer EDI’s $3.8 billion contract (via a separate finance vehicle) to supply and maintain 78 double-decker, eight-carriage “Waratah” trains to Sydney’s Railcorp was seven-times bigger than any train order that the company had previously handled. Downer subcontracted the 624 railway car shells and undercarriage bogies to China Railway because it could not justify building a huge workshop for what may be a one-off contract.
China Railway erected a 9000-square-metre factory in just seven months. That, says an awe-struck manager, “is the time it would take in Australia to get building approvals”. And yet that 360-metre-long facility is one small dot on the map of China Railway’s sprawling empire.
At the signing in 2006 – after the NSW government had spent 13 years promising and unpromising a 14-kilometre rail link from Parramatta to Epping – the Waratah trains were a huge political matter for NSW and a prestigious contract for China Railway.
No Chinese train company had ever won an export contract to the developed world before. Only last month, Australia’s ambassador in Beijing, Geoff Raby, told the Communist Party secretary of Jilin province that the world would be watching how China performed.
Lu says he values the Australian project experience and it remains a priority. But the money involved would seem to barely justify such status.
He reveals he will receive just $150 million from Downer for building the stainless steel car bodies and undercarriages, given that higher-value components are imported from elsewhere. That’s $240,000 for each Australian carriage compared with $4.7 million Lu receives for each finished bullet train carriage.
“For â€šÃ‡Â¨5 billion ($A7.1 billion), I have to build 1500 high-speed cars in three years” says Lu. “And that’s not all, there will be more”.
Lu has built a factory complex on the outskirts of Changchun to house his bullet trains. Here it quickly becomes clear that Australian concerns about China’s train-building competence are wide of the mark.
Liu Lihui, who manages the bullet train aluminium fabrication plant, wears plastic shower caps on the soles of his shoes to keep the polished concrete sufficiently pristine for train carriages to glide around on air-cushioned platforms. These hover-lifts reduce the need for roof-hanging cranes, he says, which reduces the number of roof-supporting pillars, which maximises room where space is at a premium. Nevertheless, despite making the most of the space he’s got, after he’s doubled production to two cars a day he will build another two identical workshops, each 180 metres wide and 1.6 kilometres long.
“High-speed rail is the top priority of the Ministry of Rail and this reflects the priorities of the people and the state,” says Liu.
China Railways Vehicles is technically owned by another arm of the state, but it is the Ministry of Railways that makes its executives jump. The ministry exemplifies China’s unrivalled political capacity to marshal resources and march the country towards a common objective to get extraordinary things done. It is the only line ministry that gives itself the power to issue its own government bonds, even though it has no trouble persuading state-owned banks to lend to projects in need.
“High-speed and mass-transport trains are good for the environment, save a lot of energy and promote industry,” says Lu. “It’s very easy to get money from the banks.”
The ministry employs 2.5 million people and has its own police force and courts. Last year, the ministry successfully killed efforts by the top leadership to dilute its power within an integrated “super-ministry” of transport.
But the flipside of all that concentrated power to produce and control hardware is recurrent glitches with the software.
China’s new trains are exceedingly comfortable, they all tend to depart and arrive on time and passenger numbers are among the highest in the world. But, for an ordinary person, obtaining a ticket can be a nightmare. At peak periods, such as Chinese New Year – when 200 million migrant workers and family members struggle to get home – tickets mysteriously disappear inside the Ministry of Railways and reappear in the hands of scalpers outside ticket offices.
Downer EDI never expected to have to train so many trades people – steel welding, laying rubber flooring, mixing graffiti-proof paint and installing vandal-proof windows – only to find some of those workers disappear out of their workshop and vanish to other corners of the China Railway empire.
The Waratah trains are running eight months late and costs are blowing out.
The troubles have already cost Downer three chief executives, two chairmen and a $190 million write-down.
That $190 million breaks down into three roughly equal parts: rising wages and unforseen engineering costs, rising materials costs (caused by runaway Chinese demand) and late penalties issued by Railcorp. Sydney’s 78 Waratah trains seem jammed between Railcorp and China’s Ministry of Railways. The two companies, Downer EDI and China Railways, are learning to be flexible, which often means leaving formal notices and contractual details on the shelf.Click to read more